Recovery Mode

What is Recovery Mode?

Recovery Mode kicks in when the Total Collateral Ratio (TCR) of the system falls below 150%.

During Recovery Mode, liquidation conditions are relaxed, and the system blocks borrower transactions that would further decrease the TCR.

New USDL may only be issued by adjusting existing Vaults in a way that improves their ICR, or by opening a new Vault with an ICR of >=150%.

In general, if an existing Vault's adjustment reduces its ICR, the transaction is only executed if the resulting TCR is above 150%.

What is the Total Collateral Ratio?

The Total Collateral Ratio or TCR is the ratio of the Dollar value of the entire system collateral at the current PLS:USD price, to the entire system debt.

In other words, it's the sum of the collateral of all Vaults expressed in USD, divided by the debt of all Vaults expressed in USDL.

What is the purpose of Recovery Mode?

The goal of Recovery Mode is to incentivize borrowers to behave in ways that promptly raise the TCR back above 150%, and to incentivize USDL holders to replenish the Stability Pool.

Economically, Recovery Mode is designed to encourage collateral top-ups and debt repayments, and also itself acts as a self-negating deterrent; the possibility of it occurring actually guides the system away from ever reaching it.

Recovery Mode is not a desirable state for the system.

What are the fees during Recovery Mode?

While Recovery Mode has no impact on the redemption fee, the borrowing fee is set to 0% to maximally encourage borrowing (within the limits described above).

How can I make my Vault safe in Recovery Mode?

By increasing your collateral ratio to 150% or greater, your Vault will be protected from liquidation. This can be done by adding collateral, repaying debt, or both.

Can I be liquidated if my collateral ratio is below 150% in Recovery Mode?

Yes, you can be liquidated below 150%. In order to help avoid liquidation in Normal Mode and Recovery Mode, it is recommended that users keep their collateral ratio above 150%.

Condition	Liquidation Behavior
ICR <=100%	Redistribute all debt and collateral (minus PLS gas compensation) to active Vaults.
100% < ICR < MCR & SP USDL > Vault debt	USDL in the Stability Pool equal to the Vault's debt is offset with the Vault's debt. The Vault's PLS collateral (minus PLS gas compensation) is shared between depositors.
100% < ICR < MCR & SP USDL < Vault debt	The total Stability Pool USDL is offset with an equal amount of debt from the Vault. A fraction of the Vault's collateral (equal to the ratio of its offset debt to its entire debt) is shared between depositors. The remaining debt and collateral (minus PLS gas compensation) is redistributed to active Vaults.
MCR <= ICR < 150% & SP USDL >= Vault debt	The Stability Pool USDL is offset with an equal amount of debt from the Vault. A fraction of PLS collateral with dollar value equal to 1.1 * debt is shared between depositors. Nothing is redistributed to other active Vaults. Since its ICR was > 1.1, the Vault has a collateral remainder, which is sent to the CollSurplusPool and is claimable by the borrower. The Vault is closed.
MCR <= ICR < 150% & SP USDL < Vault debt	Do nothing.
ICR >= 150%	Do nothing.

How much of a Vault’s collateral can be liquidated in Recovery Mode?

In Recovery Mode, liquidation loss is capped at 110% of a Vault's collateral. Any remainder, i.e. the collateral above 110% (and below the TCR), can be reclaimed by the liquidated borrower using the standard web interface.

This means that a borrower will face the same liquidation “penalty” (10%) in Recovery Mode as in Normal Mode if their Vault gets liquidated.